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A State-By-State Guide to Taxation

A State-By-State Guide to Taxation

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Almost every State relies on the taxes they get from cigarettes but as more smokers are quitting or changing to e-cigarettes, tax receipts are falling. Taxing cigarettes is widely accepted as the right thing to do because of the negative impact they have on human health. In some states these taxes can be huge – in Chicago for example, there is almost $7.50 tax on each packet sold. These taxes represent a sizeable amount of each State budget, which means that as the income declines they will seek out new taxable items to make up the deficit. In many States, e-cigarettes are in the firing line to be heavily taxed.

According to one report between 2011 and 2014 the USA lost over a billion dollars in tax revenue from cigarettes. This a huge amount of revenue to be made up and shows why the e-cigarettes are not a favorite of law makers and economists. However, there is a significant difference – cigarettes are heavily taxed because the damage to public health has been proven beyond all reasonable doubt while there is no such evidence against e-cigarettes. In fact, some reports have shown them to be over 90% safer and leading politicians in other countries have endorsed them.

Taxation on E-Cigarettes

While there may be no clear reasoning behind any individual State’s decision to tax e-cigs, some areas are already doing so. Taxation on e-cigarettes tends to follow two distinct models. Either the e-liquid is taxed based on a cost per milliliter or the products are all taxed based on a percentage of the wholesale price. Some areas are looking to combine the two taxing systems. Here are the current tax regimes on e-cigarettes and the proposed systems that are still waiting to go through the local legislature.

  • Kansas – Every milliliter of e-liquid has 20¢ of tax placed upon it.
  • Louisiana – Each milliliter has 5¢ of tax added on.
  • Minnesota – 95% of the wholesale price is payable in tax.
  • North Carolina – Each milliliter has 5¢ of tax added on.
  • Washington D.C. – 70% of the wholesale cost is payable in tax.
  • Vermont – 46% of the wholesale price is payable in tax.

These are the first States to introduce taxation on the price of e-cigarettes and e-liquids but many more are trying to follow in their footsteps. Last year eight States tried to introduce varying tax rates but all were voted down in the legislature phase. Maine and Massachusetts both tried to make e-cigarettes subject to the same tax as cigarettes (a couple of dollars). In comparison, some went even further; Oregon was hoping to introduce a tax rate of 81.25% of the wholesale price. Alabama aimed to charge 25¢ of tax on each individual milliliter.

These may seem like small figures but they will soon leave businesses in the vaping industry with massive tax liabilities that will be difficult to pay. State taxes could do more damage to the industry than the FDA regulations. This could dampen innovation in the market but it could also mean many e-cigarette businesses are forced to close down or relocate to regions with more sympathetic tax regimes.

There is a clear pattern among the States that are taxing e-cigarettes and it tends to reflect where the US tobacco industry has influence. North Carolina may have an e-cigarette tax but it has the 48th lowest level of taxation on cigarettes. It is also involved in the production of the commercial tobacco crop. This obviously isn’t the same story for all States with taxes on e-cigarettes. Some like Vermont and D.C. (who have high tobacco taxes) are clearly pursuing this agenda based on concerns over public health.

E-cigarettes clearly shouldn’t be tax-free but should they be subjected to such high levels of taxation? Sales tax applies to most e-cigarette purchases in each State but the added taxes are the real problem. E-cigarettes are not the same as cigarettes and shouldn’t be taxed in the same way. Any taxes on vaping should be reasonable and should be relative to the harm they cause. They should not be used as a scapegoat in order to shore up the budgets of individual States.

How should e-cigarettes be taxed in the future? Do you think it is fair to tax them like cigarettes? Share your thoughts in the comments and on our social media pages.

Michael Grey
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Michael Grey

With a passion to educate through my writings and a passion to help others, I found my place here at Black Note. Being that I am a former smoker who quit smoking because of vaping, I knew I could help others do the same. Working for Black Note is a true blessing. Not only do I help educate vapers on a daily basis through my writings, but I am also enjoying the benefits of working with an amazing team and sharing an authentic tobacco solution with the vaping community.
Michael Grey
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